World Economy, where next?
1. The annual World economic growth in the last 20 years with some exceptions was between 3-4 % (only negative year of 2% was 2008). It means the world economy almost doubled in these years, viz
This increase created demand also for increased financial liquidity that was supplied by US$, and the result is the US deficit.
2. The Euro partly replaced US$ as world currency with some recent setback. I believe the Euro crisis is nearing to its end and and most probably Euro will be back in the near future. Yet, the European economy is a long term stagnating economy, due to demographic and political problems. So the Euro will never really have the capacity to compete US$ and endanger its position.
3. China with its increased self confidence, probably will start to shift its policy from exporting and net lending economy towards more balanced economy, with increased local consumption level. (This trend is already happening). If this process will be cleverly done, (and i believe the Chinese know what they are doing) this process will be done with creating a stronger and internationally recognized freely convertible currency. The Chinese Yuan will be appreciated in real terms against the US$, Yen and the Euro (the alternative is inflation). This process, even if marginally damaging exports will only strengthen the position of China in the world economy.
4. As to unprecedented world economic growth, the modern economy is based on debts expecting to generate returns as interest and equity investment expecting high yields. This can be secured only while the economy is growing. Otherwise an economic crisis is inevitable. Yet if there will be no major technological breakthrough in the fields of energy, basic raw materials, accumulated environmental unbalances, this resources have their limits, and when reached their price jump is inevitable. The world economy will have to react to these commodity price increases caused by limited resources with slow down. This is why to try to solve the problem of low economic growth with encouraging increased consumption, like in US is a very short term short sighted policy. Not to speak about its negative effect on the US current account deficit. Viz;